CHAPTER 6

COMPLETING THE ACCOUNTING CYCLE

 Adjustments are Journalized and Posted

 This step in the accounting cycle brings the ledger into agreement with the data
reported in the financial statements

Journal page 1
Date Account Titles and Explanation P.R. Debit Credit
2020
May 31 Advertising Expense 530 140,000
Prepaid Advertising 150 140,000
To record expired advertising

Unearned Survey Revenues 260 40,000

Survey Revenues 410 40,000
To record earned survey revenues

Prepaid Advertising Account No. 150

Date Explanation J.R. Debit Credit Balance
2020
May 31 Expired Advertising J-1 140,000 xxx

Unearned Survey Revenues Account No. 260

Date Explanation J.R. Debit Credit Balance
2020
May 31 Earned Survey Revenues J-1 40,000 xxx

Advertising Expense Account No. 530

Date Explanation J.R. Debit Credit Balance
2020
May 31 Expired Advertising J-1 140,000 xxx

Survey Revenues Account No. 410

Date Explanation J.R. Debit Credit Balance
2020
May 31 Expired Advertising J-1 40,000 xxx
  Closing Entries are Journalized and Posted
 The closing entries update the owner’s capital account at the end of the period.
 Eliminate the balances of the nominal accounts to ready them for the next accounting
period

 Steps in Closing the Accounts

1. Close the Income Accounts
 Since income accounts have nominal credit balances, each revenue account
will have to be debited in the amount of its balance to bring their balances to
zero. The credit is made to the income summary account.

Journal page 1
Date Account Titles and Explanation P.R. Debit Credit
2016
May 31 Painting Revenue 4101 210,000
Income Summary 330 210,000
To close income accounts

2. Close the Expense Accounts

 Expense accounts have nominal debit balances, each of these will have to be
credited to close the account. Thus a compound entry is needed considering
the number of expense accounts. The total of all expense accounts is then
debited to income summary.

Journal page 1
Date Account Titles and Explanation P.R. Debit Credit
2016
May 31 Income Summary 330 33,040
Salaries Expense 510 4,000
Utilities Expense 520 5,040
Insurance Expense 530 2,700
Rent Expense 540 12,000
Art Supplies Expense 550 1,800
Depreciation Expense 560 6,000
Bad Debts Expense 570 1,500
To close expense accounts

1
posting closing entries is the same with that of journal and adjusting entries
 3. Close the Income Summary to Capital
 Notice that after posting the entries involving the income and expense
accounts, the balance of the income summary account is exactly the net
income or net loss for the period.
 A credit balance indicates a net income and a debit balance indicates a net
loss (for capital account)

Journal page 1
Date Account Titles and Explanation P.R. Debit Credit
2016
May 31 Income Summary 330 176,960
Ong, Capital 310 176,960
To close income summary to capital

4. Close the Drawing/Withdrawal Account

 The drawing account represents the amount withdrawn by the owner
either in cash or non-cash assets for personal use. It is for this reason that
the debit balance of the drawing account should be closed to capital

Journal page 1
Date Account Titles and Explanation P.R. Debit Credit
2016
May 31 Ong, Capital 310 18,000
Ong, Drawing 320 18,000
To close drawing account to capital

 Post-closing Trial Balance – is prepared from the general ledger accounts after the closing
 entries have been posted
- confirms the equality of the debits and credits

Kelly Consulting
Post-closing Trial Balance
April 30, 2010

Cash P22,100 Remember:

Accounts Receivable 3,400
Supplies 1,350 Post-Closing Trial Balance
Prepaid Rent 3,200 is composed only of real
Prepaid Insurance 1,500 accounts.
Office Equipment 14,500
Accumulated Depreciation P330
Accounts Payable 800
Salaries Payable 120
Unearned Fees 2,500
Kelly Pitney, Capital 42,300

Totals P46,050 P46,050

 Reversing Entries – made to simplify the accounting process

- Is simply a journal entry that is just the Reversing entries are
opposite of the adjusting entry made at the optional and are not used
end of the preceding accounting period in connection with all
- Made on the first day of the next accounting adjusting entries
period

 The following are the adjusting entries that

Generally, a reversing entry should
can be reversed:
 Prepayments (expense method) be made for any adjusting entry
 Unearned revenues (income method) that increased and asset or a
 Accrued Expenses liability account
 Accrued Revenues